SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 7, 1999
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in charter)
Maryland 1-11527 04-3262075
(State or other (Commission file (IRS employer
jurisdiction of number) identification no.)
incorporation)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 617-964-8389
CERTAIN IMPORTANT FACTORS
This Current Report contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places in this Current Report and
include statements regarding the intent, belief or expectations of Hospitality
Properties Trust (the "Company"), its Trustees or its officers with respect to
the declaration or payment of dividends, the consummation of additional
acquisitions, policies and plans of the Company regarding investments,
dispositions, financings, conflicts of interest or other matters, the Company's
qualification and continued qualification as a real estate investment trust or
trends affecting the Company's or any hotel's financial condition or results of
operations. Readers are cautioned that any such forward looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those contained in the forward
looking statements as a result of various factors. Such factors include, without
limitation, changes in financing terms, the Company's ability or inability to
complete acquisitions and financing transactions, results of operations of the
Company's hotels and general changes in economic conditions not presently
contemplated. The information contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, including the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations", identifies other important factors that could cause such
differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
1995 A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS
TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
Item 5. Other Events.
On April 7, 1999, Hospitality Properties Trust agreed to issue and sell
3,000,000 shares of a new series of preferred shares, the 9 1/2% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"), in a
public offering. We expect to issue and deliver the 3,000,000 Series A
Preferred Shares on or about April 12, 1999. The price to the public will be
$25 per share. We expect to use the $72.4 million of net proceeds (after
estimated expenses and underwriters' discount) of the offering to reduce
outstanding amounts under our bank credit facility, to buy additional hotels
and for general business purposes. We also granted the underwriters an option
to purchase an additional 450,000 Series A Preferred Shares to cover over-
allotments.
The following is a summary of some of the terms and conditions of the
Series A Preferred Shares and does not purport to be complete. This summary
is subject to, and is qualified by reference to all of the terms and conditions
of the Series A Preferred Shares in the related Articles Supplementary and in
our Declaration of Trust. The form of the Articles Supplementary is filed as an
exhibit to this Report.
Holders of Series A Preferred Shares will be entitled to receive cumulative
cash dividends at a rate of 9 1/2% per annum of the $25 per share liquidation
preference (equivalent to $2.375 per annum per share). Beginning in June 1999,
distributions on the Series A Preferred Shares will be payable quarterly in
arrears on the last day of each March, June, September and December or, if not a
business day, the next business day. Dividends on the Series A Preferred Shares
will be cumulative from (but excluding) the date of original issuance, which is
expected to be April 12, 1999. The Series A Preferred Shares rank senior to our
common shares with respect to the payment of dividends.
The Series A Preferred Shares do not have any maturity date, and we are not
required to redeem the Series A Preferred Shares. We may not redeem the Series A
Preferred Shares prior to April 12, 2004, except in limited circumstances
relating to our continuing qualification as a REIT. On and after April 12, 2004,
we may, at our option, redeem the Series A Preferred Shares, in whole or from
time to time in part, by payment of $25 per share, plus accrued and unpaid
distributions through and including the date of redemption.
If we liquidate, dissolve or wind up our Company, holders of the Series A
Preferred Shares will have the right to receive $25 per share, plus accrued and
unpaid distributions through the date of payment, before any payments are made
to the holders of our common shares.
-1-
The holders of Series A Preferred Shares generally have no voting rights.
However, if we do not pay dividends on the Series A Preferred Shares for six or
more quarterly periods (whether or not consecutive), the holders of the Series
A Preferred Shares, voting as a class with the holders of any other class or
series of our capital shares which has similar voting rights, will be entitled
to vote for the election of two additional trustees to serve on our Board of
Trustees until we pay all dividends which we owe on the Series A Preferred
Shares. In addition, the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Series A Preferred Shares is required for us to
authorize, create or increase capital shares ranking senior to the Series A
Preferred Shares or to amend our Declaration of Trust in a manner that
materially and adversely affects the rights of the Series A Preferred Shares.
The Series A Preferred Shares are not convertible into or exchangeable for
any other securities or property.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information.
Index to Unaudited Consolidated Pro Forma Financial Statements and Other Data
(see index on page F-1).
(c) Exhibits.
1.1 Underwriting Agreement, dated as of April 7, 1999, by and among
Hospitality Properties Trust and the several underwriters named
therein relating to 3,450,000 9 1/2% Series A Cumulative
Redeemable Preferred Shares.
3.1 Form of Articles Supplementary relating to the 9 1/2% Series A
Cumulative Redeemable Preferred Shares.
4.1 Form of temporary 9 1/2% Series A Cumulative Redeemable Preferred
Share Certificate.
8.1 Opinion of Sullivan & Worcester LLP re: tax matters.
12.1 Computation of Pro Forma Ratio of Earnings to Fixed Charges.
12.2 Computation of Pro Forma Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends.
23.1 Consent of Sullivan & Worcester LLP (contained in Exhibit 8.1).
-2-
HOSPITALITY PROPERTIES TRUST
Index to Unaudited Pro Forma Consolidated Financial Statements and Other Data
1. Introduction to Unaudited Pro Forma Consolidated Financial Statements
and Other Data.......................................................... F-2
2. Unaudited Pro Forma Consolidated Balance Sheet and Other Data as of
December 31, 1998....................................................... F-3
3. Unaudited Pro Forma Consolidated Statement of Income and Other Data for
the Year Ended December 31, 1998........................................ F-4
4. Notes to Unaudited Pro Forma Consolidated Financial Statements and
Other Data.............................................................. F-5
F-1
HOSPITALITY PROPERTIES TRUST
Introduction to Unaudited Pro Forma Consolidated Financial Statements
and Other Data
The following unaudited pro forma consolidated balance sheet at December 31,
1998 is intended to present the consolidated financial position of the Company
as if the transactions described in the notes hereto (the "Transactions") were
consummated at December 31, 1998. The following unaudited pro forma consolidated
statement of income is intended to present the consolidated results of
operations of the Company as if the Transactions were consummated on January 1,
1998. These unaudited pro forma consolidated financial statements should be read
in conjunction with, and are qualified in their entirety by reference to, the
separate consolidated financial statements of the Company for the year ended
December 31, 1998, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. These unaudited
adjusted pro forma consolidated financial statements are not necessarily
indicative of what the actual consolidated financial position or results of
operations of the Company would have been as of the date or for the period
indicated, nor do they purport to represent the expected consolidated financial
position or results of operations of the Company for any future period.
Differences may result from, among other considerations, future changes in the
Company's portfolio of investments, changes in interest rates, changes in the
capital structure of the Company, delays in the acquisition of certain
properties or any determination not to complete the acquisition of any hotel
properties and changes in operating expenses.
The following unaudited pro forma consolidated balance sheet and unaudited pro
forma consolidated statements of income were prepared pursuant to the Securities
and Exchange Commission's rules for the presentation of pro forma data. The pro
forma and adjusted pro forma other data give effect to the consummation by the
Company of the Transactions. Certain properties expected to be acquired by the
Company are currently under construction or development by the sellers. Other
properties were under construction during the period presented when they were
owned or under development by the sellers. The accompanying pro forma
information does not give further effect to the completion of construction or
the related lease commencement for any period prior thereto. Construction
projects not completed by December 31, 1998 are likewise not reflected in the
pro forma balance sheet. Rather, the effect of completion of construction of
these properties is presented separately from the pro forma information as
described in the accompanying notes. The Company believes that a display of such
adjusted pro forma data is meaningful and relevant to the understanding of the
Transactions and, accordingly has presented such data in the final two columns,
labeled "Other Data," on the accompanying pages.
F-2
HOSPITALITY PROPERTIES TRUST
Unaudited Pro Forma Consolidated Balance Sheet and Other Data
As of December 31, 1998
(amounts in thousands)
Pro Forma Other Data
--------- ----------
Pro Forma Other Adjusted Pro
Historical (A) Adjustments Pro Forma Adjustments Forma
-------------- ----------- --------- ----------- -----
Assets
Real estate properties $1,887,735 $200,395 (B) $2,088,130 $97,341(G) $2,185,471
Accumulated depreciation (112,924) -- (112,924) -- (112,924)
---------- -------- ---------- ------- ----------
1,774,811 200,395 1,975,206 97,341 2,072,547
Cash and cash equivalents 24,610 (24,154)(C) 456 (200)(H) 256
Restricted cash (FF&E Reserve) 22,797 -- 22,797 -- 22,797
Other assets, net 15,420 -- 15,420 -- 15,420
---------- -------- ---------- ------- ----------
$1,837,638 $176,241 $2,013,879 $97,141 $2,111,020
========== ======== ========== ======= ==========
Liabilities and Shareholders' Equity
Senior notes, net of discount $414,753 $ -- $414,753 $ -- $ 414,753
Revolving debt -- 81,000(D) 81,000 87,000 (I) 168,000
Security and other deposits 206,018 22,803(E) 228,821 10,141 (J) 238,962
Other liabilities 43,010 -- 43,010 -- 43,010
Shareholders' equity:
9-1/2% Series A Cumulative Redeemable Preferred Shares -- 72,438(F) 72,438 -- 72,438
Common shares of beneficial interest 456 -- 456 -- 456
Additional paid-in capital 1,230,849 -- 1,230,849 -- 1,230,849
Cumulative net income 203,507 -- 203,507 -- 203,507
Dividends (260,955) -- (260,955) -- (260,955)
---------- -------- ---------- ------- ----------
Total shareholders' equity 1,173,857 72,438 1,246,295 -- 1,246,295
---------- -------- ---------- ------- ----------
$1,837,638 $176,241 $2,013,879 $97,141 $2,111,020
========== ======== ========== ======= ==========
See accompanying notes to unaudited pro forma consolidated financial statements
and other data.
F-3
HOSPITALITY PROPERTIES TRUST
Unaudited Pro Forma Consolidated Statement of Income and Other Data
For the Year Ended December 31, 1998
(amounts in thousands, except per share and ratio amounts)
Pro Forma Other Data
--------- ----------
Pro Forma Other Adjusted Pro
Historical (K) Adjustments Pro Forma Adjustments Forma
-------------- ----------- --------- ----------- -----
Revenues:
Rental income $157,223 $32,603 (L) $189,826 $26,718(S) $216,544
FF&E reserve income 16,108 1,104 (M) 17,212 -- 17,212
Interest income 1,630 -- 1,630 -- 1,630
-------- ------- -------- ------- --------
Total revenues 174,961 33,707 208,668 26,718 235,386
-------- ------- -------- ------- --------
Expenses:
Depreciation and amortization of
real estate assets 54,757 9,965 (N) 64,722 8,614(T) 73,336
Interest 21,751 18,520 (O) 40,271 5,873(U) 46,144
General and administrative 10,471 1,508 (P) 11,979 1,304(V) 13,283
------- ------- -------- ------- --------
Total expenses 86,979 29,993 116,972 15,791 132,763
------- ------- -------- ------- --------
Income before extraordinary item and preferred dividends 87,982 3,714 91,696 10,927 102,623
------- ------- -------- ------- --------
9-1/2% Series A preferred share dividends -- 7,125 (Q) 7,125 -- 7,125
------- ------- -------- ------- --------
Income before extraordinary item available
for common shareholders $87,982 $(3,411) $ 84,571 $10,927 $95,498
======= ======= ======== ======= =======
Weighted average common shares outstanding 42,317 3,279 (R) 45,596 -- 45,596
======= ======= ======== ======= =======
Income before extraordinary item available for common
shareholders per share $2.08 $1.85 $2.09
===== ===== =====
Ratio of Earnings to Fixed Charges 5.0x 3.3x 3.2x
Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends 5.0x 2.8x 2.8x
See accompanying notes to unaudited pro forma consolidated financial statements
and other data.
F-4
HOSPITALITY PROPERTIES TRUST
Notes to Unaudited Pro Forma Consolidated Financial Statements and Other Data
(dollars in thousands)
Pro Forma Consolidated Balance Sheet Adjustments
A. Represents the audited historical consolidated balance sheet of the
Company at December 31, 1998.
B. Represents the purchase of 25 hotels open but not acquired as of December
31, 1998.
Cash purchase prices:
Three Candlewood Suites(R) hotels $ 22,668
Four TownePlace Suites by Marriott(R) hotels 24,887
Eighteen Homestead Village(R) hotels 129,040
Purchase price withheld as security deposit 22,803
Closing costs 997
--------
Total $200,395
========
C. Represents the net effect of the pro forma adjustments on cash.
D. Represents pro forma net borrowings under the credit facility after
completion of the proposed issuance of $75 million Series A Cumulative
Redeemable Preferred Shares (the "Proposed Offering") and the purchase of
the hotels discussed in B, above.
E. Represents security deposits held or to be held by the Company as a result
of purchasing and leasing the following hotels:
Three Candlewood Suites(R) hotels $ 3,932
Four TownePlace Suites by Marriott(R)hotels 2,911
Eighteen Homestead Village(R) hotels 15,960
-------
Total $22,803
=======
F. Represents net proceeds from the Proposed Offering.
Other Data
Consolidated Balance Sheet Adjustments
G. Represents the purchase of 9 hotels acquired or to be acquired, but not open
as of December 31, 1998:
Cash purchase prices:
Three Courtyard by Marriott(R)hotels $29,716
Three Residence Inn by Marriott(R)hotels 31,904
Three TownePlace Suites by Marriott(R)hotels 25,096
Purchase price withheld as security deposits 10,141
Closing costs 484
-------
Total $97,341
=======
H. Represents the net effect of the other adjustments on cash.
I. Represents other pro forma net borrowings by the Company under the credit
facility to complete the planned acquisition of hotels still under
development as of December 31, 1998.
J. Represents security deposits held by the Company as a result of purchasing
and leasing the following hotels:
Three Courtyard by Marriott(R)hotels $ 3,475
Three Residence Inn by Marriott(R)hotels 3,731
Three TownePlace Suites by Marriott(R)hotels 2,935
--------
Total $10,141
=======
F-5
HOSPITALITY PROPERTIES TRUST
Notes to Unaudited Pro Forma Consolidated Financial Statements and Other Data -
continued
(dollars in thousands)
Pro Forma Consolidated Income Statement Adjustments
K. Represents the audited historical income statement of the Company for the
year ended December 31, 1998.
L. Represents the pro forma effect of leases entered and to be entered for
hotels open during the periods presented. This pro forma effect is derived
as follows:
Year Ended
December 31,
1998
-----------
Pro forma Minimum Rent $ 186,390
Pro forma Percentage Rent 3,436
Amounts included in historical Minimum Rent (153,787)
Amounts included in historical Percentage Rent (3,436)
---------
$ 32,603
=========
Certain of the hotels owned by the Company as of December 31, 1998 were
under development and others are currently under development by the sellers
of these properties. The Company is not contractually obligated to acquire
these hotels until they are substantially completed. The foregoing pro
forma income statement assumes the hotels, which were completed prior to
December 31, 1998 were acquired as of their completion date.
M. FF&E Reserve escrow accounts for all of HPT's Marriott(R) brand hotels are
owned by HPT and periodic payments into these escrow accounts are recorded
as additional rent under generally accepted accounting principles ("GAAP").
A pro forma adjustment to record additional rent relating to FF&E escrow
contributions of $1,104 has been made for four hotels acquired in December
1998 which were open and operating throughout 1998. No pro forma adjustment
for the FF&E Reserve income related to newly constructed hotels purchased
and to be purchased by HPT from Marriott has been made, as this amount
cannot be calculated. The FF&E Reserve for HPT's Wyndham(R), Sumner
Suites(R), Candlewood Suites(R), Summerfield Suites(R) and Homestead
Village(R) hotels remains the property of the respective tenants during the
lease term. HPT has a security interest in these escrow accounts and at the
end of the lease term, any remaining funds in these FF&E Reserves must be
paid to HPT. Under GAAP, the FF&E Reserve for the leases relating to these
hotels is not recorded as income by HPT.
N. Represents the impact of the pro forma transactions on depreciation expense
for the entire period presented.
O. Represents the following adjustments to interest expense:
o Eliminating interest on the $125 million CMBS Notes repaid upon the
issuance of the 7% Senior Notes in February 1998 including
amortization of deferred financing costs.
o Adding interest on $81 million of proceeds from HPT's $300 million
credit facility used to fund the acquisition Transactions discussed in
B above.
o Adding interest, including amortization of deferred financing costs,
for the year ended December 31, 1998, on the senior notes issued
during 1998.
o Adding amortization of deferred financing costs related to the Credit
Facility.
P. Represents the estimated impact of the Transactions on general and
administrative expenses of the Company for the periods presented.
Q. Represents dividends accrued on the Proposed Offering at a rate of 9 1/2%.
R. Represents the weighted average impact of 6.7 million common shares of
beneficial interest issued by the Company during 1998.
F-6
HOSPITALITY PROPERTIES TRUST
Notes to Unaudited Pro Forma Consolidated Financial Statements and Other Data -
continued
(dollars in thousands)
Other Data
Consolidated Income Statement Adjustments
S. Represents the effect of leases entered and to be entered for the
transactions described in Note G above, since the beginning of the periods
presented. The effect of these leases is derived as follows:
Year Ended
December 31,
1998
------------
Adjusted Pro forma Minimum Rent $213,108
Adjusted Pro forma Percentage Rent 3,436
Amounts included in pro forma Minimum Rent (186,390)
Amounts included in pro forma Percentage Rent (3,436)
--------
$ 26,718
========
T. Represents the impact of the transactions described in Note G above, on
depreciation expense for the entire period presented.
U. Represents interest on the credit facility borrowings to be made in
connection with the transactions described in Note G above, at LIBOR plus
contractual spreads for the entire periods presented. The average applicable
LIBOR rate was 5.6% for the year ended December 31, 1998.
V. Represents the estimated impact of the transactions described in Note G
above, on general and administrative expenses of the Company.
F-7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
-------------------------------
John G. Murray, President
Date: April 7, 1999